August 15, 2019 12:57PM

Macri Is the Only One Responsible for His Downfall

The Wall Street Journal described it as a “setback,” but the appropriate term is a “shellacking.” Mauricio Macri’s chances of being reelected in Argentina are pretty much over after he finished 12 points behind the Peronist ticket of Alberto Fernández and former president Cristina Fernández de Kirchner in Sunday’s mandatory presidential primaries. Even though Macri might still think he can make a miraculous comeback, the markets are already writing him off for the election in October. Thus, it’s not too soon to write his presidential obituary.

The case against Macri is straightforward. Nearly four years after coming to power, the economy is contracting, inflation is among the highest in the world, poverty is rising, and the country has once again been bailed out by the IMF. Even Macri’s sympathizers struggle to find positive data to support his case for reelection.

Granted, Macri inherited an economic mess after 12 years of populist rule by Fernández de Kirchner and her late husband Nestor. He won the election in 2015 by a slim margin. He didn’t have a majority in Congress. He had to face powerful unions. Furthermore, in the past one hundred years there has not been a single non-Peronist president that has successfully completed a presidential term.

Dismantling currency and price controls, cutting back subsidies, reducing overall spending, bringing the deficit under control, and taming inflation was not going to be easy. The question from the beginning was, what kind of approach would Macri adopt to reforms? He opted for gradualism. Macri was quick to lift currency controls and return Argentina to international bond markets, but he failed in cutting spending. Thus, the fiscal deficit remained high, taxes continued to be punitive, and high inflation endured.

In December 2016, one year after he came to power, the joke making the rounds was that Macri was a Harry Potter-style president: he could only survive while the magic lasted. Unfortunately, his ultimate act of magic was not pursuing structural reforms but indebting the country: public debt—both foreign and domestic—skyrocketed. Back then I warned in my weekly column in Costa Rica’s La Nación that sooner or later the magic will end.

The magic dust evaporated in May 2018 when the peso lost 20% of its value in a week. This was caused by a couple of unforced errors: the readjustment of inflation targets and the introduction of a new capital gains tax. Facing meltdown, Macri was forced to negotiate a bailout with the dreaded IMF—at $57 billion, the highest ever. Inflation soared due to the devaluation of the peso, and the economy went into recession. Even though Macri accelerated some spending cuts after the agreement with the IMF, he increased taxes and even reinstated price controls.

By the time he launched his campaign for reelection, it was difficult to call Macri a “reformist.” His main goal during his years in power has been to fight for his reelection. In the end, as Sunday’s result attests, it looks like he will not even achieve that.

August 14, 2019 9:20AM

Progressives’ Financial Inclusion Agenda Is Likely to Backfire

In a recent op-ed for CNN, Rep. Rashida Tlaib (D-MI) suggests a plan for improving the financial inclusion of minority households. She believes that reversing the Trump administration’s recent regulatory initiatives on credit discrimination and mortgage reporting legislation would improve matters.

While Rep. Tlaib is right to point out the disproportionate numbers of blacks among those lacking access to financial services, their financial exclusion goes back, not years or months, but decades. Moreover, her recommendations would mainly double down on existing regulations that seem to perpetuate rather than mitigate financial exclusion.

Rep. Tlaib begins with the striking finding that, ostensibly, the black homeownership rate in the second quarter of 2019 was lower than at any time since 1970. At 40.6 percent, it came in six percentage points below the Hispanic homeownership rate and almost a third below that of whites. Tlaib worries that, because black Americans are so much less likely than other racial groups to own their home, they will have a harder time achieving economic stability.

While homeownership is indeed a popular form of wealth accumulation, the share of Americans who own their homes is hardly a straightforward measure of financial security. For example, the homeownership rate among all households hit an all-time high of 69.1 percent at the start of 2005, a time of exceptionally high home prices and extremely loose credit standards. The financial crisis that followed, with foreclosures hitting up to 10 million families, belied the assumption that the new homeowners had achieved financial security.

Black Americans’ low homeownership rate is the product of many causes, notably decades of institutional discrimination that made it difficult or impossible for blacks to gain access to the same job opportunities and schooling as whites. Discrimination caused black households to have persistently lower incomes and greater professional and personal instability, frustrating their attempts to earn and save. Explicit government policies also limited black Americans’ access to credit by designating predominantly black neighborhoods as “hazardous” to prospective lenders. Because banks since the 1930s have sold most of their mortgages to government and government-sponsored entities, an official recommendation against lending in certain areas had the power of a veto.

Rep. Tlaib is right to focus attention on the troubling legacy of redlining, but blaming a recent and marginal reduction in regulation for blacks’ low homeownership rate is highly suspect. For one thing, the most recent quarterly rate of 40.6 percent is only slightly below the 41 to 43 percent range recorded for most quarters since the beginning of 2012. The estimate’s margin of error, at 0.9 percent, is also high. Thus, the record low reported for the last quarter could be a statistical fluke or a short-lived dip. Giving one quarterly result great significance is probably unwise at this stage.

Tlaib’s op-ed also makes an important category mistake. As evidence of redlining, it refers to a piece of investigative journalism that claimed to find discrimination against minorities in mortgage lending. But, while they may affect similar communities, credit discrimination and redlining are quite different practices. Redlining involves the systematic avoidance by lenders of certain neighborhoods. Discrimination, on the other hand, is the denial of credit to people because of their gender, race, age, disability status, or other personal traits. Redlining is geographical, whereas discrimination focuses on individual characteristics. Each calls for a different policy fix.

Moreover, the study in question was controversial at its publication because, in analyzing lending data for different racial groups, it did not consider borrowers’ credit scores. These scores seek to summarize the risk of lending to individuals and predict their likelihood of default. They are probably the most important factor in a lender’s decision to approve a loan and on the terms of the loan. Excluding credit scores from a study of discrimination will almost surely yield spurious findings, because credit scores correlate with both borrower income and race.

Rep. Tlaib believes the Trump administration’s housing policies, such as a rumored tightening of the evidentiary standard required to make a discrimination claim and a reduction of mortgage reporting requirements for small lenders, attack “the last line of defense against the declining rate of minority homeownership.”

But there is no clear positive correlation between these regulations and the black homeownership rate. On the contrary, the fear of a disparate-impact claim under the current standard may chill lending activity and innovation. Furthermore, tighter mortgage underwriting rules – whether beneficial or harmful on net – did lead banks small and large to reduce their footprint in this area, a retreat that nonbank fintech lenders have only partially offset. The CFPB’s recent request for comments on how its qualified mortgage (QM) regulations should change ostensibly seeks to make compliance less burdensome, without promoting loans that will likely fail.

Rep. Tlaib rightly points out the unintended phenomenon whereby regulations under the Community Reinvestment Act (CRA) cause most of the lending for which regulators grade banks to flow to higher-income borrowers in low-income areas. My own research using District of Columbia data shows that two-thirds of mortgages eligible for CRA points in 2017 went to this group. Further statistical analysis undertaken with my colleague Andrew Forrester suggests that CRA lending may in fact accelerate the displacement of low-income residents in gentrifying neighborhoods. In DC’s census tracts, each additional percentage-point increase in CRA lending between 2012 and 2017 correlated with a three-percentage-point decline in the minority share of that tract’s population.

Tlaib wants CRA points to be “based more heavily on a person’s income, rather than location.” But such a shift would violate the statutory language of the CRA, which requires that lending be “consistent with the safe and sound operation” of banks. Because lower-income borrowers tend to be riskier, mandating that banks lend to them could harm financial stability. Recent experience of how the executive and legislative branches carelessly expanded the affordable housing goals of Fannie Mae and Freddie Mac, the dominant purchasers of mortgages originated by U.S. banks, suggests that the risk low-income lending would backfire is not merely hypothetical.

The high rate of unbanked and underbanked households among minority Americans is a serious concern, as limited access to banking impairs one’s ability to borrow, save, and invest for the future. But the statutes Rep. Tlaib cites in her op-ed, such as the Fair Housing Act, the Home Mortgage Disclosure Act, and the CRA cannot help to increase the share of Americans with bank accounts, because their goal is to combat credit discrimination (for the FHA and the HMDA) and redlining (in the case of the CRA). Instead, public policy should seek to reduce the cost of holding a bank account for people who maintain low balances and to enable firms that the unbanked trust to provide basic banking services. According to government surveys, cost and trust are the two main factors causing the unbanked not to hold bank accounts. As I explained in Sunday’s Washington Post, cutting the regulatory cost of bank accounts and allowing nonbanks such as retailers and tech firms to offer mobile accounts would help to reduce the number of unbanked.

I applaud Rep. Tlaib for bringing the financial exclusion of lower-income and minority Americans into the spotlight. Unfortunately, her recipe to address exclusion relies almost exclusively on the regulatory status quo. One hopes that, as a prominent progressive, Tlaib will come to recognize that the policies of the 1970s cannot solve the policy concerns of 2019.

[Cross-posted from Alt-M.org]

August 13, 2019 4:45PM

The Conquest of the United States by China

In 1898, after the United States’ quick victory in the Spanish-American war, the great Yale social scientist William Graham Sumner gave a speech titled “The Conquest of the United States by Spain.” He told his audience, "We have beaten Spain in a military conflict, but we are submitting to be conquered by her on the field of ideas and policies."

He argued that early Americans “came here to isolate themselves from the social burdens and inherited errors of the old world” and chose to “to strip off all the follies and errors which they had inherited.... They would have no court and no pomp; no orders, or ribbons, or decorations, or titles. They would have no public debt. They repudiated with scorn the notion that a public debt is a public blessing; if debt was incurred in war it was to be paid in peace and not entailed on posterity.”

The American citizen “was, above all, to be insured peace and quiet while he pursued his honest industry and obeyed the laws.”

But, he said, if America became a colonizing nation like the empires of Europe, we would become afflicted with “war, debt, taxation, diplomacy, a grand-government system, pomp, glory, a big army and navy, lavish expenditures, and political jobbery – in a word, imperialism.” And in that day we would have thrown away the American principle of liberty for “a Spanish policy of dominion and regulation.”

I was reminded of Sumner’s warning when I read a column in the Washington Post by Eswar Prasad, a prominent trade economist at Cornell University and the Brookings Institution. Prasad warns that in its trade war with China the Trump administration seems determined to emulate China:

China might seem in a better position to cope with a trade war, since it is a heavily managed economy and the government squashes political resistance. Yet its every maneuver carries enormous risks. Meanwhile, Trump, who manages a durable and flexible economy, is not exactly seeking victory for the American way of doing business. His approach, in some ways right out of Beijing’s playbook, would make our economy quite a bit more like China’s.

Prasad enumerates some of China’s “advantages” in a trade war: a state-dominated economy, with state-owned banks, and an autocratic government that can shut down dissent and censor bad news. Trump, on the other hand, has the advantage of an “enormously flexible and resilient” economy and bipartisan support for “getting tough on China.” But Prasad warns:

Yet in exercising his power, he could end up making America’s economy a bit more like the state-dominated one operated by Beijing — and, in so doing, permanently damage the U.S. free market. To rescue the agricultural sector from the consequences of the trade war, Trump has already dispatched $28 billion in government subsidies. He has also jawboned American companies to move their production bases back to U.S. shores, rather than letting them make their own commercial decisions. Trump has even pressured the Federal Reserve, whose independence is seen as sacrosanct, to lower interest rates and suggested that the Fed should help drive down the value of the dollar. With such moves, he risks undermining the true strengths of the United States: the institutions that make the U.S. dollar and the American financial system so dominant.

What’s worse, Trump suggests that the rule of law is up for negotiation. After imposing sanctions on Chinese technology companies such as ZTE and Huawei for running afoul of U.S. rules, he hinted that those sanctions could be negotiated away as part of a trade deal.

Much as Sumner worried in 1898 that the United States was trading its peace and liberty for “a Spanish policy of dominion and regulation,” Prasad fears that

China has made its lack of independent institutions a source of strength in dealing with external economic aggression. In that model, Trump sees something Washington should copy — and seems ready to abandon what makes the United States special. 

We faced a similar challenge in the 1980s when powerful American voices called for an industrial policy similar to the one they credited with the success of the then-booming Japanese economy. But critical analysis from Cato scholars and others across the political spectrum stopped that campaign, just in time for us to watch Japan sink into its “lost decade” of economic stagnation.

Sumner got a lot right. The United States did become a globe-circling imperial power burdened by war, debt, taxation, regulation, and rent-seeking. Will Prasad prove equally prophetic? Will we fight a trade war with China, only to discover that we have adopted “a Chinese policy of dominion and regulation”?

August 13, 2019 2:41PM

Repeal Old AUMFs and Salt the Earth

For months now, the Trump administration has pursued a “maximum pressure” campaign that—by accident or by design—has brought the United States to the brink of war with Iran. The branch of government with the constitutional power to declare war ought to have the final word here. Lately, however, Trump officials have hinted that Congress has already had its say—nearly 18 years ago, when it authorized war with Al Qaeda and the Taliban.  

The 2001 Authorization for the Use of Military Force, passed three days after the September 11 attacks, targets the perpetrators of 9/11 and those who “harbored” or “aided” them. In the intervening years, the 2001 AUMF has been stretched far beyond its original purposes—but the Trump team apparently believes it can be stretched further still. In June we learned that, in a closed session, Secretary of State Mike Pompeo gave House members “a full formal presentation on how the 2001 AUMF might authorize war on Iran.” Two weeks ago, at a Senate Foreign Relations Committee hearing, administration officials left the door open to that interpretation with an ominous qualifier: “the administration has not to date interpreted [the 2001 AUMF] as authorizing military force against Iran.” Why the caveat? Five different senators pressed for answers, but the State Department legal adviser refused to address “hypotheticals”: “we can't predict future events.” 

Last Wednesday, the Charles Koch Institute hosted a panel discussion, “Unauthorized? The 2001 AUMF and Iran,” featuring Steve Vladeck, Heather Brandon-Smith, and myself. No question mark necessary, we argued: no good-faith reading of the AUMF could conclude it covers war with Iran in 2019. 

I’d like to amplify a point I made there: this is a line of argument that proved too brazen even for the Bush-Cheney administration, back when the AUMF was young. That should tell us something about how spurious the Trump administration’s position is, nearly two decades later. 

In the summer of 2002, when President George W. Bush was hell bent on taking out Saddam Hussein, anonymous White House lawyers floated the idea that the president already had all the power he needed to go to war without Congress. “Bush Aides Say Iraq War Needs No Hill Vote,” a Washington Post headline blared on August 26, 2002. The president’s legal team had three arguments for that proposition: first was the John Yoo theory that Article II gives the president the “right to start wars.” Second was the equally fantastic claim that the 1991 Gulf War resolution, authorizing George H.W. Bush to liberate Kuwait, still had enough life left in it to authorize his son to take Baghdad over a decade later. The 2001 AUMF came in as an afterthought: the Bush 43 lawyers argued that it “bolstered” their position, though, as the Post noted, “That argument would depend on linking Iraq and al Qaeda.”

At the time, Bush officials were working hard to establish that link in the public mind. Vice President Dick Cheney claimed that 9/11 hijacker Mohamed Atta had met with Iraqi intelligence in Prague five months before the attacks. President Bush insisted that links between Iraq and Al Qaeda were so tight that “on any given day,” Saddam might give WMD to the group for a second 9/11. None of this turned out to be true, but you push for war with the disinformation you have. 

Even so, as the Post story suggests, the Bush legal team rated the 2001 AUMF as their third-best argument, behind the maximalist interpretation of Article II powers and the claim that the Gulf War AUMF authorized regime change in Iraq 11 years after Desert Storm. That's also reflected in the October 2002 Bush Office of Legal Counsel opinion on authority for the Iraq War. The 2001 AUMF argument gets one paragraph in the 48-page OLC opinion, analysis limited to a conclusory sentence: “Were the President to determine that Iraq provided assistance to the perpetrators of the September 11th attacks, this authorization would apply to the use of military force against Iraq.” 

The Bush-Cheney team was hardly shy about aggressive legal interpretations of the post-9/11 AUMF: they invoked it to justify secret surveillance programs; military imprisonment, without charges, of American citizens on American soil; and other enormities. But, in the end, they decided the 2001 AUMF couldn’t carry the weight of a new war with a country that had nothing to do with the September 11 attacks. While refusing to concede that separate authorization was legally necessary, the administration opted to secure a new AUMF for the Iraq War. 

Nearly 18 years after the 2001 AUMF’s passage, the case that it covers war with Iran is weaker still. The 9/11 Commission Report found “no evidence” that Iran “was aware of the planning for what later became the 9/11 attack.” The Trump administration has no such evidence now, which is probably why Secretary Pompeo keeps pounding the table about an alleged “connection” between Iran and Al Qaeda. It’s a bait and switch tactic designed to reframe the AUMF debate around a standard that’s easier to meet, even if it’s nowhere to be found in the law. 

At the recent SFRC hearing, Sen. Jeff Merkley (D-OR) walked the Trump State Department’s legal adviser through the language of the 2001 AUMF: Did Iran plan, authorize, commit, or aid the 9/11 attack? Did they harbor those who did? Answer: “Not that I’m aware of, Senator.” “Five standards. You just said none of them were met,” Senator Merkley summed up, “And yet you persist in arguing in interpretation of an AUMF that Congress didn't intend and is not there in the language.” 

The lesson we should draw from all this is that it’s profoundly dangerous to leave old war authorizations on the books. Indeed, as my copanelist Heather Brandon-Smith points out, the Trump administration claims the 2002 Iraq AUMF “authorizes force to address both ‘threats to’ and ‘stemming from Iraq,’” covering military operations in “Syria or elsewhere.” The old saw that “a government bureau is the nearest thing to eternal life we’ll ever see on this earth” could just as easily apply to unrepealed AUMFs. Even if those that look dormant are a potential source of mischief for any president who decides to reanimate them. It’s past time for the two Iraq authorizations and, especially, the 2001 AUMF to go the way of the Gulf of Tonkin Resolution

August 13, 2019 12:48PM

E‑Verify Is Not an Effective Immigration Enforcement System, as Mississippi ICE Raids Show

Last week, Immigration and Customs Enforcement raided many meat processing plants in Mississippi and arrested 680 suspected illegal immigrants. The raids were front page news as some of their children were pleading on television for the government to release their parents. Political pundits were busy excusing the raids and calling for more or highlighting the plight of the families left behind and the supposed hypocrisy of immigration enforcers who aren’t targeting President Trump’s properties. 

Although the plight of families and discrepancies in enforcement based on possible political sensitivities is worth investigating, the long-term lesson from the Mississippi raids is that E-Verify does not stop the hiring of illegal immigrants. Mississippi passed a mandate that required all firms to run all new hires through E-Verify at the point of hire as of July 1, 2011. According to the promises made by E-Verify proponents, there should have been zero illegal immigrants employed in Mississippi – yet ICE had to raid some plants there. Rather than showing the strength of government immigration enforcement efforts, the raids in Mississippi show that E-Verify mandates are incapable of preventing illegal immigrants from working. 

This post will explain how E-Verify functions (I won’t say “works”), how illegal immigrants get around the system, how immigration restrictionists want to reform E-Verify, and why the real solution is increasing legal immigration.

Background

E-Verify is a government system whereby employers enter the identity information of new hires into an online portal. The system compares these data with information held in the Social Security Administration and Department of Homeland Security databases. The employee is work authorized if the databases decide that the data are valid. A flag raised by either database returns a “tentative non-confirmation,” requiring the employee and employer to sort out whatever error has been flagged. If the employee and employer cannot correct the errors, the employee receives a “final non-confirmation” and the employer must terminate the worker.

The states of Alabama, Arizona, Mississippi, and South Carolina have mandated E-Verify for all new hires. Arizona was the first state to mandate it on January 1, 2008, South Carolina mandated it on July 1, 2010, Mississippi on July 1, 2011, and Alabama on April 1, 2012. In those four states, the law demands that every employer must run every new hire’s identity information through the E-Verify system. Cheerleaders for the E-Verify system, who have repeatedly presented it as a silver bullet that will solve illegal immigration, have yet to confront the reality that this system did not prevent the hiring of illegal immigrants in Mississippi or too many other places.

How E-Verify Fails

E-Verify’s bark is worse than its bite. After the Arizona government first mandated it in 2008, the illegal immigrant population of Arizona fell dramatically until illegal immigrants discovered how to get around the system. Since then, E-Verify mandates have had negligible effects on illegal immigrant populations in states where it was mandated. Don’t take my word for it. Former Arizona state Republican Senator Rich Crandall said that E-Verify “was the great hope that never was . . . it was promised as the silver bullet to immigration problems. E-Verify was going to solve our challenges with immigration.”

The first reason E-Verify fails is that illegal immigrant workers use other people’s identification to get work authorized. If an illegal immigrant gives a legal person’s identification to their employer to check through E-Verify, the system approves the identification – which means the illegal worker is approved. Many of these workers pass by using stolen identities, as in the case of the Mississippi raids, but many also “borrow” identities from willing lenders. This is an illustrative example:

An unauthorized immigrant from Zacatecas, Manuel had first settled in the San Francisco Bay Area and sought work in construction. However, because the construction industry in San Francisco is unionized, Manuel had discovered that potential employers would check his I-9 form with E-Verify, a federal database that matches Social Security cards and names. So Manuel contacted an uncle in Zacatecas who had obtained a Social Security card in the early 1970s when he had first migrated to California—to ask about using his card. His uncle, who had returned to Mexico permanently with no plans to reenter the United States, agreed.

When next applying for work, Manuel presented his uncle’s Social Security card and a fake legal permanent resident card (green card) bearing his uncle’s name—which he had purchased from a local vendor—to the employer. The employer, in turn, was able to verify that the SSN was on file with the Social Security Administration (SSA) and that it matched the uncle’s name. This ploy allowed Manuel the luxury of finding work in a sector of the economy normally closed to the unauthorized. In entering a unionized construction job, Manuel benefited from more comfortable work conditions and employer-provided benefits. Moreover, in contrast to what he had earned in agriculture—typically about $25,000 a year—Manuel was able to earn $60,000 to $80,000 a year in construction.

It's difficult enough to stop identity theft, and virtually impossible to stop it when the person voluntarily lends his identity to somebody else.

The second reason E-Verify fails is that states don’t enforce their mandates. In 2017, only 45 percent to 53 percent of all new hires in Mississippi were run through the E-Verify system despite the universal mandate (some data sources report slightly different numbers). The majority of the plants raided actually used E-Verify, including the Peco Foods plant in Bay Springs that stated that it “adheres strongly to all local, state and federal laws.” Mississippi’s E-Verify compliance rates are the lowest of all states with mandates, but its compliance rates aren’t too dissimilar from other states with mandates. If Arizona, Mississippi, Alabama, and South Carolina won’t enforce their own E-Verify mandates on the state level, there’s no hope that the federal government will do a better job nationwide.

The cynical public choice-influenced economist in me thinks that E-Verify is popular among immigration restrictionist politicians because it doesn’t work but it makes the politician look like a tough enforcer. Thus, many will get the political benefits of being an immigration restrictionist without forcing their districts to pay a heavy economic cost. 

After all, very few interior immigration enforcement methods will be effective, so they might as well pick the ones that don’t impose enormous costs on valued constituents. That probably explains why only a handful of businesses were shut down in Arizona despite the legal authority to do so, and they were all bankrupt anyway. Essentially, the I-9 program and E-Verify incentivize illegal immigrants to use other identities to get valuable jobs. If there was no I-9 or E-Verify requirement then the demand for fake identities among illegal immigrant could collapse and the black market in documents would crater.

Although the evidence is slim, one of the potential ways in which E-Verify might lower the cost of enforcement is by helping ICE conduct worksite and I-9 audits from a distance. If that’s true, and that’s a mighty big if, that is a slim benefit compared to the silver bullet program that was supposed to turn off the wage magnet attracting illegal immigrants

E-Verify Doesn’t Work – Now What?

There are a couple of ways to make E-Verify less of a total failure. The first is to attach biometrics to it, such as linking state driver's license pictures to the federal identity database and forcing employers to check those at the point of hire. Arizona, Maryland, Wyoming, Wisconsin, North Dakota, Mississippi, Florida, Idaho, Iowa, and Nebraska are already participating in the RIDE initiative that links state photo identification to federal databases accessed by E-Verify. This increases employer responsibility and opens them up to a wide variety of lawsuits over workplace discrimination. Furthermore, it only works if the worker is using an identity with a driver's license or other state photo identity. 

The second way to make E-Verify less likely to fail is to link it with some form of a national identity card that likely includes biometric information like fingerprints. Everybody in the United States would have to be issued one of these and present them at the point of hire in order to exclude illegal immigrants from employment. Many immigration restrictions like Dan Stein of the Federation of American Immigration Reform already favor a national biometric identity card, but their goal is much easier to politically achieve if half-way measures like E-Verify are fully mandated and fail. 

When President Ronald Reagan's first attorney general, William French Smith, argued for a national ID card to limit illegal immigration, the president reportedly scoffed, “Maybe we should just brand all the babies.” The prospect of a national ID card that includes our individual biometric data is terrifying. Nothing good will come from such a system, but plenty of bad things could happen as a result of it. It’s best to oppose E-Verify now rather than see it fail in a nationwide mandate and then be replaced by a national biometric identity card. Immigration restrictionists should go back to the drawing board and come up with something that works. 

Reducing Illegal Immigration

The only way to reliably reduce the incentive of some employers to hire illegal immigrants is to allow more immigrants to work legally in the United States, either temporarily on guest-worker visas or permanently on green cards. The government has dramatically increased the number of H-2 visas for temporary workers from Mexico while the number of Mexicans crossing the border illegally has collapsed – probably because they can now enter legally. 

Since the big expansion in H-2 visas around the Great Recession, the stock of Mexican workers in the United States has continually fallen as some of those who leave are replaced by legal workers. Reforming H-2 visas so migrants can work in year-round occupations such as meatpacking and dairy, as well as expanding H-2 opportunity to people in other countries will further reduce the flow of illegal immigrants and, eventually, their stock. 

More visas reduced Mexican illegal immigration in the 1950s and early 1960s and they’ve been doing so for almost 20 years. It's time to bring back a proven system for reducing illegal immigration and ignore quick-fix technological schemes like E-Verify that overpromise, underdeliver, and require other expensive policy reforms to become marginally effective.

Conclusion

The raids in Mississippi show that E-Verify is a weak and failed program. If E-Verify lived up to its expectations, those workers would never have been employed in Mississippi in the first place. Immigration restrictionists might complain that the E-Verify laws weren’t well-enforced, but that’s silly, as illegal immigrants are here working because the immigration laws aren’t well-enforced either. The current version of those laws can’t be well-enforced without doing significant economic damage and violating the civil liberties of tens of millions of people. Expecting E-Verify to enforce itself and eliminate the incentive to work here illegally is the triumph of wishful thinking over reality. As the Mississippi raids show, immigration restrictionists need to ditch E-Verify and go back to the drawing board if they aren’t going to embrace liberalized legal migration. At a very minimum, E-Verify's biggest supporters should acknowledge the failure of their program in Mississippi.

August 13, 2019 12:00PM

Free the Eyebrow Threaders

One of the encouraging signs for the future of liberty is the spread of state-based groups engaging in constitutional litigation, often with a focus on economic liberty -- protecting the right to earn an honest living and thus to pursue the American Dream. That's why I recently joined the Mississippi Center for Public Policy (MCPP) as a nonresident senior fellow and chairman of the board of advisors to MCPP's legal arm, the Mississippi Justice Institute (MJI).

Today, MJI filed a new federal lawsuit and joined the ongoing legal fight against occupational licensing laws. MJI’s client is Dipa Bhattarai, a Mississippi eyebrow threader. 

If you don’t know, eyebrow threading is a very safe method of hair removal that doesn't involve the use of sharp implements, harsh chemicals, or heat. Instead, threading artists use nothing but twisted cotton thread, acting like a mini-lasso, to remove stray hair. It's also much more precise, convenient, and affordable than waxing and tweezing. It's an ancient technique that has been practiced for centuries in South Asian countries like Nepal, where Dipa was born.

Dipa was attending the Mississippi University for Women when she saw an opportunity to pursue her dream of starting a business. When she threaded her friends’ eyebrows as a favor, word quickly spread across campus of this superior technique. She soon had more classmates asking for her help than she could keep up with. Seeing an unserved market, Dipa opened a threading business with her brother. In less than two years, they opened a second location and hired four employees to accommodate all of their customers.

Dipa was truly living her American Dream—until an inspector from the Mississippi State Board of Cosmetology showed up and forced her to shut down her business. Dipa did not have an esthetician’s license, you see, which is required for beauty care in Mississippi.

The problem is that obtaining an esthetician’s license requires taking 600 hours of beauty school classes — which can cost up to $12,000 — even though the classes don't teach anything about eyebrow threading.

Fortunately, Dipa will have some persuasive authority in her corner. Our friends at the Institute for Justice won a similar case in Texas in 2015. In Patel v. Texas Department of Licensing & Regulation, the Texas Supreme Court faced a state constitutional challenge to a rule that threaders obtain esthetician licenses requiring 750 hours of irrelevant instruction.

The Texas Supreme Court adopted a new standard of review that was more stringent on regulations impinging on economic liberty than federal "rational basis" review. Notably, Justice Don Willett (now a judge on the U.S. Court of Appeals for the Fifth Circuit), joined by two other colleagues on the nine-member court, insisted in his concurrence that the law would have been struck down even under the rational-basis standard.

If you missed it, then-Judge Willett’s concurrence is worth a read. Indeed, it almost certainly propelled him onto President’s Trump’s list of potential Supreme Court nominees. Here is a sample:

This case concerns far more than whether Ashish Patel can pluck unwanted hair with a strand of thread. This case is fundamentally about the American Dream and the unalienable human right to pursue happiness without curtsying to government on bended knee. It is about whether government can connive with rent-seeking factions to ration liberty unrestrained, and whether judges must submissively uphold even the most risible encroachments.

I'll be anxiously watching to see if MJI can prove Willett right: irrelevant licenses for eyebrow threaders can't survive even rational-basis scrutiny. It’s time to free the eyebrow threaders from this hairy situation.

August 13, 2019 10:45AM

Don’t Cry for Me, Democratic Socialists

When debating socialists, it often feels as if you’re trying to hit a moving target.

Socialism in action, in the words of Robert Lawson and Ben Powell, “sucks.” But as my former colleague Kristian Niemietz explains through a litany of historical examples, countries once claimed to show another way is possible are quickly dismissed as “not real socialism” when things inevitably turn sour.

Debating socialism is more complex still in the contemporary United States. That's because today’s self-declared “democratic socialists” are trying to re-define what socialism means entirely.

Gone is the lofty aim of collective ownership of the means of production and exchange. Instead, democratic socialism à la Bernie Sanders and Alexandria Ocasio-Cortez combines a commitment to a massively expanded welfare state with a range of microeconomic interventions, support for alternative business-ownership models, labor market regulation, and economic planning in pursuit of environmental goals.

When asked where this "democratic socialism" has been tried and worked, Sanders, Ocasio-Cortez and others cite Scandinavian countries such as Denmark. The Nordic economies are said to happily combine an extensive welfare state with good social outcomes.

But while Scandinavian countries have extensive social insurance, they are robust market economies that spurn highly intrusive economic controls and regulations. That’s why in 2015, the Danish Prime Minister made clear: “Denmark is far from a socialist planned economy. Denmark is a market economy.”

In Sweden, good social outcomes and low inequality predated the welfare state. There is lots of evidence that there the economy grew much more slowly between the 1970s and 1990s when the state was more economically interventionist (as I outlined on Fox Business when prominent democratic socialist Bhaskar Sunkara highlighted that era as something to aspire to). Indeed, Johan Norberg has explained how Sweden has fundamentally shifted away even from a democratic socialist model in recent decades.

If contemporary Nordic economies are not “democratic socialist” then, do any other countries indicate what the American fate might be under these types of policies?

A recent J.P. Morgan research note broadened the search and:

looked for countries that, relative to the U.S., are characterized by:

  • Higher personal and corporate tax rates, and higher government spending
  • More worker protections restricting the ability of companies to hire and fire, and less flexibility for companies to set wages based on worker productivity and/or to hire foreign labor
  • More reliance on regulation, more constraints on real estate development, more anti-trust enforcement and more state intervention in product markets; and a shift away from a shareholder-centric business model
  • More protections for workers and domestic industries through tariff and non-tariff barriers, and more constraints on capital inflows and outflows

It concluded:

I couldn’t find any country that ticked all these democratic socialist boxes, but I did find one that came close: Argentina, which has defaulted 7 times since its independence in 1816, which has seen the largest relative standard of living decline in the world since 1900, and which is on the brink of political and economic chaos again in 2019.

My Cato colleague Marian Tupy once outlined the dramatic decline in relative Argentinian economic performance over the 20th century in this summary table below.

 

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The country is of course in the news today due to economic turmoil triggered by its unexpected election result. Its currency is plunging and the economy is in deep recession with high unemployment and inflation at nearly 56 percent.

True, Argentina hasn’t suffered the complete and utter economic and social collapse experienced by "real socialism" in Venezuela, the Soviet Union, North Korea et al. But its economic model has led to a prolonged and fairly dramatic decline. That’s why Jeff Miron and I have described “democratic socialism” as the “scenic route to serfdom.”